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On 2 August 2021, aerospace and defence firm Meggitt plc (Meggitt) announced that it had agreed the terms of a £6.3bn recommended cash offer from Parker-Hannifin Corporation (Parker), an American motion and control technology specialist. The offer would see shareholders receive £8.00 per share, representing a 71% premium to the closing price on 30 July 2021. Meggitt’s share price jumped by 57% at close of business on 2 August 2021.
Meggitt manufactures components for both civilian and military aircrafts and is a critical supplier to Rolls-Royce Holdings plc and BAE Systems plc. To quell concerns, Parker has agreed to provide a number of legally binding national security, economic and social commitments to the UK government. These include meeting existing contractual obligations, committing to targets of reducing net carbon emissions, and maintaining a majority UK national board, UK headquarters, UK headcount for existing R&D, product engineering and manufacturing roles and the existing level of R&D expenditure in the UK with an increase by at least 20% over the next five years. However, of all the commitments given, only the one concerning R&D expenditure will be valid for longer than 12 months. The final form, nature and detail of the commitments will be finalised with the UK government and other stakeholders.
Business secretary Kwasi Kwarteng is reportedly closely monitoring the deal and may intervene if deemed necessary. Under the Enterprise Act 2002, the Secretary of State has powers to intervene on M&A transactions which raise national security concerns and these powers will be strengthened by the upcoming National Security and Investment Act 2021 (NS&I Act) (a subscription to Lexis®PSL Corporate is required) which comes into force on 4 January 2022. The Parker offer will certainly be caught by the NS&I Act as it will have retrospective effect and apply to transactions that closed on or after 12 November 2020.
As a player in the aerospace and defence sector with a 50 year plus presence in the UK serving both commercial and government contracts, Parker is distinguished from the flurry of US private equity bidders that have recently snapped up the FTSE Main Market and AIM in H1 2021 (US bidders comprised 50% of bids in H1 2021 and accounted for 48% of P2P transactions, see: Market Tracker Trend Report: Trends in UK public M&A in H1 2021). In the offer announcement, Parker highlighted the natural synergies that would be created through the combination of the two entities with a forecasted £216m pre-tax reduction in costs three years following completion of the acquisition, and reiterated Parker’s commitment to being a ‘responsible steward’ of Meggitt.
Parker’s CEO, Tom Williams, said the following of the offer:
'The combination of Parker and Meggitt is an exciting opportunity for both companies' team members, customers, shareholders and communities. We strongly believe Parker is the right home for Meggitt. Together, we can better serve our customers through innovation, accelerated R&D and a complementary portfolio of aerospace and defense technologies.
We are committed to being a responsible steward of Meggitt and are pleased our acquisition has the full support of Meggitt's Board. We fully understand these responsibilities and are making a number of strong commitments that reflect them. During our longstanding presence in the UK we have built great respect for Meggitt, its heritage, and its place in British industry. Our own journey over more than 100 years has taught us the importance of a strong culture and reputation.'
Market Tracker will continue to monitor this transaction as it develops. For examples of how companies are addressing the NS&I Act 2021 in takeover documentation, see Practice Note: National Security and Investment regime—market practice tracker (a subscription to Lexis®PSL Corporate is required).
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Market Tracker is a unique service for corporate lawyers housed within Lexis®PSL Corporate. It features a powerful transaction data analysis tool for accessing, analysing and comparing the specific features of corporate transactions, with a comprehensive and searchable library of deal documentation across 14 different deal types. The Market Tracker product also includes news and analysis of key corporate deals and activity and in-depth analysis of recent trends in corporate transactions.
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